What to do with that extra money?

Just months after hiking health premiums, shifting costs to employees and plugging a projected multimillion-dollar deficit in its health benefits fund, the city of Houston has found itself with a sizable surplus in that account instead.

The city had used $14 million to fill the projected deficit in its health fund in January, after predictions about claims and premiums proved inaccurate. In a memo issued this week, Human Resources Director Omar Reid said the city’s calculations were indeed off – but in the other direction, with claims coming in lower than expected.

That, combined with the January payment, leaves the health fund with an $18 million surplus, he wrote.

Fresh off benefit cuts and premium hikes in May, the municipal employees’ union is livid. It is demanding that Mayor Annise Parker rescind jumps in co-pays, deductibles, co-insurance and out-of-pocket maximums, and cut the increase in employee premiums from 14.9 percent to 8.7 percent.

The city’s share of premiums, which covers three-quarters of plan costs, with the rest coming from workers, also rose 14.9 percent in May.

City Councilmen Stephen Costello, Dave Martin and James Rodriguez said they are concerned city staff have shown an inability to project health costs and said the public should be wary, too. Health costs make up almost 10 percent of the city’s general fund operating budget.

“To have a change as drastic as this means somebody really didn’t do a very good job of diligence in their financial analysis of the program, and I’m trying to find out why is that happening,” Martin said. “More importantly, what can we do about it in the future, and how reliable is the data today?”

Rodriguez added, “My faith is somewhat shaken in their ability to calculate these numbers.”

I wouldn’t be too hard on the city’s financial analysts. Clearly, they made overly cautious projections, but I find it difficult to crime them for it given the steady drumbeat of pension-related financial doomsaying we’ve been subjected to lately. How could they be anything but overly cautious in an environment like that? I’m quite certain they’d have been taken to the woodshed for being too exuberantly optimistic if their initial projection had been much lower. The story doesn’t detail how this projection was made, but my guess is that the analysts relied heavily on historical data, most likely without sufficiently taking into account the fact that health care costs have grown a lot more slowly in the past five years than at any time in the past fifty years. Of course, they may have accounted for that but also considered that no one really knows why cost growth has slowed, and no one really knows how long that slowdown trend will last. If they erred towards excessive caution, I can understand their thinking.

Still, that caution had a profound impact on the city’s employees, who paid a lot more for their health care than they actually needed to. The union is right to demand that the employees get their money back. I’m sensitive to the concerns that this could be a blip on the graph, but that gets back to my earlier point about how these projections were done. Now that we have some empirical data, how about we revisit what our assumptions were and see where we might make some adjustments? That should inform how we proceed and how we make it right for the city’s employees, who have given up a lot to balance the city’s budget. They deserve a fair shake.